2002 OASDI Trustees Report
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C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous sections are used in a set of models to project future income and outgo under the OASDI program. In some cases, the economic assumptions result in the direct calculation of program parameters as described in the following subsection. These parameters affect the level of payroll taxes collected and the level of benefits paid and are calculated using formulas described explicitly in the Social Security Act. In other cases, the combination of demographic and economic assumptions are used indirectly to drive more complicated models that project the numbers of future workers covered under OASDI and the levels of their covered earnings, and the numbers of future beneficiaries and the expected levels of their benefits. The following subsections provide brief descriptions of the derivations of these program-specific factors.

1. Automatically Adjusted Program Amounts

The Social Security Act specifies that certain program amounts affecting the determination of OASDI benefits are to be adjusted annually, in general, to reflect changes in the economy. The law prescribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program amounts and hence in the benefitcomputation procedures. These automatic adjustments are based upon measured changes in the national average wage index and the CPI.1 In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments became effective through 2011. Projected values for future years are based on the economic assumptions described in the preceding section of this report.

The following two tables present the historical and projected values of the CPI-based benefit increases, as well as the average wage index series and the values of many of the wage-indexed program amounts. In each table, the projections are shown under the three alternative sets of economic assumptions described in the previous section. Table V.C1 includes:

Table V.C1.—Cost-of-Living Benefit Increases, Average Wage Index, Contribution and Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2011 
Calendar year
  OASDI
benefit
increases1
(percent)
Average wage index 2
  OASDI
contribution
and benefit
base 3
Retirement earnings
test exempt amount
  Amount
  Increase
(percent)
  Under
NRA4
  At NRA5
Historical data:
1975
8.0
$8,630.92
7.5
$14,100
$2,520
$2,520
1976
6.4
9,226.48
6.9
15,300
2,760
2,760
1977
5.9
9,779.44
6.0
16,500
3,000
3,000
1978
6.5
10,556.03
7.9
17,700
3,240
4,000
1979
9.9
11,479.46
8.7
22,900
3,480
4,500






1980
14.3
12,513.46
9.0
25,900
3,720
5,000
1981
11.2
13,773.10
10.1
29,700
4,080
5,500
1982
7.4
14,531.34
5.5
32,400
4,440
6,000
1983
3.5
15,239.24
4.9
35,700
4,920
6,600
1984
3.5
16,135.07
5.9
37,800
5,160
6,960






1985
3.1
16,822.51
4.3
39,600
5,400
7,320
1986
1.3
17,321.82
3.0
42,000
5,760
7,800
1987
4.2
18,426.51
6.4
43,800
6,000
8,160
1988
4.0
19,334.04
4.9
45,000
6,120
8,400
1989
4.7
20,099.55
4.0
48,000
6,480
8,880






1990
5.4
21,027.98
4.6
51,300
6,840
9,360
1991
3.7
21,811.60
3.7
53,400
7,080
9,720
1992
3.0
22,935.42
5.2
55,500
7,440
10,200
1993
2.6
23,132.67
.9
57,600
7,680
10,560
1994
2.8
23,753.53
2.7
60,600
8,040
11,160






1995
2.6
24,705.66
4.0
61,200
8,160
11,280
1996
2.9
25,913.90
4.9
62,700
8,280
12,500
1997
2.1
27,426.00
5.8
65,400
8,640
13,500
1998
1.3
28,861.44
5.2
68,400
9,120
14,500
1999
6 2.5
30,469.84
5.6
72,600
9,600
15,500
2000
3.5
32,154.82
5.5
76,200
10,080
17,000
Intermediate:
2001
7 2.6
33,896.77
5.4
7 80,400
7 10,680
25,000






2002
1.3
34,943.24
3.1
7 84,900
7 11,280
30,000
2003
2.6
36,608.64
4.8
89,700
11,880
31,680
2004
2.8
38,115.60
4.1
92,400
12,240
32,640
2005
3.0
39,664.00
4.1
96,600
12,840
34,200
2006
3.0
41,286.14
4.1
100,800
13,320
35,520






2007
3.0
42,963.22
4.1
104,700
13,920
36,960
2008
3.0
44,667.24
4.0
109,200
14,520
38,520
2009
3.0
46,445.75
4.0
113,400
15,120
40,080
2010
3.0
48,302.26
4.0
117,900
15,600
41,640
2011
3.0
50,255.81
4.0
122,700
16,320
43,320
Low Cost:
2001
7 2.6
33,904.11
5.4
7 80,400
7 10,680
25,000






2002
1.1
35,156.59
3.7
7 84,900
7 11,280
30,000
2003
2.0
36,756.79
4.6
89,700
11,880
31,680
2004
2.0
38,180.33
3.9
93,000
12,360
32,760
2005
2.0
39,451.58
3.3
97,200
12,840
34,320
2006
2.0
40,726.90
3.2
100,800
13,440
35,640






2007
2.0
42,045.76
3.2
104,100
13,800
36,840
2008
2.0
43,450.05
3.3
107,700
14,280
38,040
2009
2.0
44,953.78
3.5
111,000
14,760
39,240
2010
2.0
46,516.32
3.5
114,900
15,240
40,560
2011
2.0
48,161.21
3.5
118,800
15,720
42,000
High Cost:
2001
7 2.6
$33,844.16
5.3
7 $80,400
7 $10,680
$25,000






2002
1.5
34,680.32
2.5
7 84,900
7 11,280
30,000
2003
3.3
36,540.65
5.4
89,400
11,880
31,560
2004
4.8
38,473.52
5.3
91,500
12,120
32,400
2005
6.0
40,109.22
4.3
96,600
12,840
34,080
2006
5.7
42,345.82
5.6
101,700
13,440
35,880






2007
4.8
45,019.34
6.3
105,900
14,040
37,440
2008
4.1
47,106.05
4.6
111,900
14,880
39,480
2009
4.0
49,131.97
4.3
119,100
15,840
42,000
2010
4.0
51,287.13
4.4
124,500
16,560
43,920
2011
4.0
53,589.77
4.5
129,900
17,280
45,840

1 Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982.

2 See table VI.E7 for projected dollar amounts of the average wage index beyond 2011.

3 Amounts for 1979-81 were specified by Public Law 95-216. The bases for years after 1989 were increased slightly by changes to the indexing procedure, as required by Public Law 101-239.

4 Normal retirement age. See table V.C3 for specific values.

5 In 1955-82, the retirement earnings test did not apply at ages 72 and over; in 1983-99, the test did not apply at ages 70 and over; beginning in 2000, it does not apply beginning with the month of attainment of NRA. In the year of attainment of NRA, the higher exempt amount applies to earnings in the year prior to the month of NRA attainment. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public Law 104-121.

6 Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively 2.5 percent.

7 Actual amount, as determined under automatic-adjustment provisions.


Other wage-indexed amounts are shown in table V.C2. The table provides historical values from 1978, when the amount of earnings required for a quarter of coverage was first indexed, through 2002, and also shows projected amounts through 2011. These other wage-indexed program amounts are:

Figure V.C1.—Primary-Insurance-Amount Formula for the 2002 Cohort
Primary-insurance-amount formula for the 2002 cohort. The depicted data can be found in table V.C1.
Figure V.C2.—Maximum-Family-Benefit Formula for the 2002 Cohort
Maximum-family-benefit formula for the 2002 cohort. The depicted data can be found in table V.C1.
Table V.C2.—Selected Wage-Indexed Program Amounts,
Calendar Years 1978-2011 
Calendar year
AIME bend
points in PIA
formula 1

PIA bend points
in maximum-
family-benefit formula 2
  Earnings
required for
a quarter of
coverage
  Old-law
contribution
and benefit base 3
  First
  Second
  First
  Second
  Third
Historical data:
1978
4/
4/

4/
4/
4/
5 $250
4/
1979
5 $180
5 $1,085

5 $230
5 $332
5 $433
260
$18,900








1980
194
1,171

248
358
467
290
20,400
1981
211
1,274

270
390
508
310
22,200
1982
230
1,388

294
425
554
340
24,300
1983
254
1,528

324
468
610
370
26,700
1984
267
1,612

342
493
643
390
28,200








1985
280
1,691

358
517
675
410
29,700
1986
297
1,790

379
548
714
440
31,500
1987
310
1,866

396
571
745
460
32,700
1988
319
1,922

407
588
767
470
33,600
1989
339
2,044

433
626
816
500
35,700








1990
356
2,145

455
656
856
520
38,100
1991
370
2,230

473
682
890
540
39,600
1992
387
2,333

495
714
931
570
41,400
1993
401
2,420

513
740
966
590
42,900
1994
422
2,545

539
779
1,016
620
45,000








1995
426
2,567

544
785
1,024
630
45,300
1996
437
2,635

559
806
1,052
640
46,500
1997
455
2,741

581
839
1,094
670
48,600
1998
477
2,875

609
880
1,147
700
50,700
1999
505
3,043

645
931
1,214
740
53,700








2000
531
3,202

679
980
1,278
780
56,700
2001
561
3,381

717
1,034
1,349
830
59,700
2002
592
3,567

756
1,092
1,424
870
63,000
Intermediate:
2003
624
3,761

797
1,151
1,501
920
66,600
2004
643
3,877

822
1,186
1,547
950
68,700
2005
674
4,062

861
1,243
1,621
990
71,700
2006
702
4,229

896
1,294
1,688
1,030
74,700








2007
730
4,401

933
1,347
1,756
1,070
77,700
2008
760
4,581

971
1,402
1,828
1,120
81,000
2009
791
4,767

1,010
1,459
1,902
1,160
84,300
2010
822
4,956

1,051
1,516
1,978
1,210
87,600
2011
855
5,153

1,092
1,577
2,056
1,260
91,200
Low Cost:
2003
624
3,762

797
1,151
1,501
920
66,600
2004
647
3,901

827
1,194
1,557
950
69,000
2005
677
4,078

864
1,248
1,627
1,000
72,000
2006
703
4,236

898
1,296
1,690
1,030
75,000








2007
726
4,377

928
1,339
1,747
1,070
77,400
2008
750
4,519

958
1,383
1,803
1,100
79,800
2009
774
4,665

989
1,427
1,862
1,140
82,500
2010
800
4,821

1,022
1,475
1,924
1,180
85,200
2011
827
4,987

1,057
1,526
1,990
1,220
88,200
High Cost:
2003
623
3,755

796
1,149
1,499
920
66,300
2004
638
3,848

816
1,177
1,536
940
68,100
2005
673
4,054

859
1,241
1,618
990
71,700
2006
708
4,269

905
1,306
1,703
1,040
75,600








2007
738
4,450

943
1,362
1,776
1,090
78,600
2008
779
4,698

996
1,438
1,875
1,150
83,100
2009
829
4,995

1,059
1,528
1,993
1,220
88,200
2010
867
5,226

1,108
1,599
2,086
1,280
92,400
2011
904
5,451

1,156
1,668
2,175
1,330
96,300

1 The formula to compute a PIA is (1) 90% of AIME below the first bend point, plus (2) 32% of AIME in excess of the first bend point but not in excess of the second, plus (3) 15% of AIME in excess of the second bend point. The bend points pertain to the first year a beneficiary becomes eligible for benefits.

2 The formula to compute a family maximum is (1) 150% of PIA below the first bend point, plus (2) 272% of PIA in excess of the first bend point but not in excess of the second, plus (3) 134% of PIA in excess of the second bend point but not in excess of the third, plus (4) 175% of PIA in excess of the third bend point.

3 Contribution and benefit base that would have been determined automatically under the law in effect prior to enactment of the Social Security Amendments of 1977. The bases for years after 1989 were increased slightly by changes to the indexing procedure to determine the base, as required by Public Law 101-239.

4 No provision in law for this amount in this year.

5 Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years subject to automatic-adjustment provisions.


In addition to the program amounts affecting the determination of OASDI benefits that reflect changes in the economy, there are certain legislated changes that have affected, and will affect, benefits. Two such changes are the scheduled increases in the normal retirement age and in the delayed retirement credits. Table V.C3 shows the scheduled changes in these two important items and their effect on benefits expressed as a percentage of PIA.

Table V.C3.—Legislated Changes in Normal Retirement Age and Delayed Retirement Credits, for Persons Reaching Age 62 in Each Year 1986 and Later
Year of birth
Year of
attainment of
age 62
Normal
retirement
age (NRA)
Credit for each
year of delayed
retirement after
NRA (percent)
Benefit, as a percentage of PIA,
beginning at age—
62
65
66
67
70
1924
1986
65
3
80
100
103
106
115
1925
1987
65
3 1/2
80
100
103 1/2
107
117 1/2
1926
1988
65
3 1/2
80
100
103 1/2
107
117 1/2
1927
1989
65
4
80
100
104
108
120
1928
1990
65
4
80
100
104
108
120
1929
1991
65
4 1/2
80
100
104 1/2
109
122 1/2
1930
1992
65
4 1/2
80
100
104 1/2
109
122 1/2
1931
1993
65
5
80
100
105
110
125
1932
1994
65
5
80
100
105
110
125
1933
1995
65
5 1/2
80
100
105 1/2
111
127 1/2
1934
1996
65
5 1/2
80
100
105 1/2
111
127 1/2
1935
1997
65
6
80
100
106
112
130
1936
1998
65
6
80
100
106
112
130
1937
1999
65
6 1/2
80
100
106 1/2
113
132 1/2
1938
2000
65, 2 mo
6 1/2
79 1/6
98 8/9
105 5/12
111 11/12
131 5/12
1939
2001
65, 4 mo
7
78 1/3
97 7/9
104 2/3
111 2/3
132 2/3
1940
2002
65, 6 mo
7
77 1/2
96 2/3
103 1/2
110 1/2
131 1/2
1941
2003
65, 8 mo
7 1/2
76 2/3
95 5/9
102 1/2
110
132 1/2
1942
2004
65, 10 mo
7 1/2
75 5/6
94 4/9
101 1/4
108 3/4
131 1/4
1943-54
2005-16
66
8
75
93 1/3
100
108
132
1955
2017
66, 2 mo
8
74 1/6
92 2/9
98 8/9
106 2/3
130 2/3
1956
2018
66, 4 mo
8
73 1/3
91 1/9
97 7/9
105 1/3
129 1/3
1957
2019
66, 6 mo
8
72 1/2
90
96 2/3
104
128
1958
2020
66, 8 mo
8
71 2/3
88 8/9
95 5/9
102 2/3
126 2/3
1959
2021
66, 10 mo
8
70 5/6
87 7/9
94 4/9
101 1/3
125 1/3
1960 & later
2022 & later
67
8
70
86 2/3
93 1/3
100
124

2. Covered Employment

Projections of the total labor force and unemployment rate are based on Bureau of Labor Statistics definitions from the Current Population Survey (CPS), and thus represent the average weekly number of employed and unemployed persons, aged 16 and over, in the U.S. in a calendar year. Total covered workers in a year are the number of persons who have any OASDI covered earnings at any time during the year. For those aged 16 and over, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the CPS concept of employment. For those under age 16, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the Social Security area population. The projection methodology accounts for changes in the business cycle, the quarterly pattern of growth in employment within each year, changes in non-OASDI covered employment, the increase in coverage of Federal civilian employment as a result of the 1983 Social Security Amendments, and changes in the number of other-than-legal aliens estimated to be residing within the Social Security coverage area.

Covered worker rates are defined as the ratio of OASDI covered workers to the Social Security area population. The projected age-adjusted coverage rate for men, aged 16 and over, changes from its 2000 level of 75.1 percent to 73.0, 72.4, and 71.9 percent for 2080 for alternatives I, II, and III, respectively. (Age-adjusted covered worker rates are adjusted to the 2000 age distribution of the Social Security area population.) For women, it changes from its 2000 level of 63.8 percent to 63.4, 62.8, and 62.3 percent for 2080 for alternatives I, II, and III, respectively.

3. Taxable Payroll and Payroll Tax Revenue

The OASDI taxable payroll is the amount of earnings in a year which, when multiplied by the combined employee-employer tax rate, yields the total amount of taxes due from wages and self-employed income in the year. Taxable payroll is used in estimating OASDI income and in determining income and cost rates and actuarial balances. (See section IV.B.1, Annual Income Rates, Cost Rates, and Balances, for definitions of these terms.) Taxable payroll is computed from taxable earnings, defined as the sum of wages and self-employment earnings subject to the Social Security tax. Wages are adjusted to take into account the "excess wages" earned by workers with multiple jobs whose combined wages exceed the taxable earnings base. Also, from 1983 through 2001, taxable payroll includes deemed wage credits for military service. Prior to 1984, the self-employed tax rate was less than the combined employee-employer rate, thus taxable self-employed earnings were weighted to reflect this. Also, prior to 1988, employers were exempt from Social Security tax on part of their employees' tips; taxable payroll was reduced by half of this exempt amount to take this into account.

Taxable earnings for employees, employers, and the self-employed are estimated from total earnings in covered employment. Covered earnings are summed from component sectors, each of which is based on the projected growth of U.S. earnings and a factor that reflects any projected change in coverage (e.g., the increase in coverage in the Federal civilian sector due to mandatory coverage of newly hired employees). The level of taxable earnings, that is, covered earnings at or below the taxable earnings base, is then estimated based on adjustments to the latest available historical earnings distributions for wage and self-employed workers. The ratio of taxable to covered earnings decreased from about 90.2 percent in 1983 to 87.9 percent in 1994, or by an average annual rate of 0.2 percent. The ratio is estimated to have fallen further to 84.4 percent in 1999, and to 83.4 in 2000, due mainly to the very high wage earners capturing a greater proportion of total wages.

Some of this historical decline is projected to continue through 2011 under all alternatives. The taxable earnings ratio is projected to be about 83.4, 82.6, and 81.9 percent for 2011 under alternatives I, II, and III, respectively, or to change at an average annual rate of about 0.0, -0.1, and -0.2 percent. After 2011, the taxable to covered ratio is held approximately constant under each alternative.

Payroll tax revenue is computed by applying the appropriate tax rates to taxable wages and self-employment income, taking into account the lag between the time the tax liability is incurred and when the taxes are collected. In the case of wages, employers are required to deposit withholding taxes with the Treasury on a schedule determined by the amount of tax liability incurred. (Generally, the higher the amount of liability, the sooner the taxes must be paid-ranging from the middle of the following month to, for companies with very large payrolls, the next banking day after wages are paid.) Self-employed workers are required to make estimated tax payments on their earnings four times during the year, as well as making up any under-estimate on their individual income tax return. The pattern of actual receipts by the Treasury is taken into account when estimating self-employed tax collections.

4. Insured Population

Eligibility for benefits under the OASDI program requires some minimal level of work in covered employment. This requirement is established by a worker's accumulation of quarters of coverage (QCs). Prior to 1978, one QC was credited for each calendar quarter in which at least $50 was earned. In 1978, when quarterly reporting of earnings was replaced by annual reporting, the amount required to earn a QC (up to a maximum of four per year) was set at $250. Since then, this amount has been adjusted each year according to the Average Wage Index. Its value in 2002 is $870.

There are three types of insured status which can be acquired by a worker under the OASDI program. Each of these statuses is determined by the number and recency of QCs earned. Fully insured status is acquired by any worker whose total number of QCs is greater than or equal to the number of years elapsed after the year of attainment of age 21 (and at least 6). Once a worker has accumulated 40 QCs, he or she remains permanently fully insured. Disability-insured status is acquired by any fully insured worker over age 30 who has accumulated 20 QCs during the 40-quarter period ending with the current quarter; any fully insured worker aged 24-30 who has accumulated QCs during one-half of the quarters elapsed after the quarter of attainment of age 21 and up to and including the current quarter; and any fully insured worker under age 24 who has accumulated 6 QCs during the 12-quarter period ending with the current quarter. Currently insured status is acquired by any worker who has accumulated 6 QCs during the 13-quarter period ending with the current quarter. Periods of disability are excluded from the above described QC requirements for insured status (but do not reduce the minimum of 6 QCs).

There are many types of benefits payable to workers and their family members under the OASDI program. One of the requirements of eligibility for these benefits is the insured status of the worker. A worker must be fully insured to be eligible for a primary retirement benefit, and for his or her spouse or children to be eligible for auxiliary benefits. A deceased worker must have been either currently insured or fully insured at the time of death for his or her children (and their mother or father) to be eligible for benefits. If there are no eligible surviving children, the deceased worker must have been fully insured at the time of death for his or her surviving spouse to be eligible. A worker must be disability insured to be eligible for a primary disability benefit, and for his or her spouse or children to be eligible for auxiliary benefits.

Projections of the fully insured population, as a percentage of the Social Security area population, are made by age and sex for each birth cohort beginning with 1900. These percentages are based on 30,000 simulated work histories for each sex and birth cohort, which are constructed from past and projected coverage rates, median earnings, and amounts required for crediting QCs. These work histories are developed by a model which assumes that persons who have recently been out of covered employment are likely to remain out of covered employment. This model is driven by two sets of age-sex-specific parameters which are empirically set such that the simulated fully insured percentages reproduce fairly closely the fully insured percentages estimated from the Continuous Work History Sample from 1970 to date.

Projections of the disability-insured population, as a percentage of the fully insured population, are made by age and sex for each birth cohort beginning with 1900. These percentages are based on the same simulated work histories used to project the fully insured percentages. Additional adjustments are made to bring the simulated disability-insured percentages into close agreement with those estimated from the Continuous Work History Sample. The principal adjustment is for periods of disability (which are not explicitly taken into account in the model). These periods (which reduce the normally applicable QC requirements) have a negligible effect on fully insured status at retirement age, but a substantial effect on disability-insured status.

Projections of the currently insured population are not made. This is because the number of beneficiaries who are entitled to benefits based solely on currently insured status has been very small, and is expected to remain small in the future.

Under this procedure, the percentage of the Social Security area population aged 62 and over that is fully insured is projected to increase from its estimated level of 78.5 for December 31, 1997, to 89.2, 90.0, and 90.7 for December 31, 2080, under alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males is projected to remain relatively unchanged. Under alternative II, for example, the percentage for males is projected to increase slightly during this period from 91.6 to 91.8, while that for females is projected to increase from 68.9 to 88.4.

5. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries is projected for each type of benefit separately, by the sex of the worker on whose earnings the benefits are based, and by the age of the beneficiary. For selected types of benefits, the number of beneficiaries is also projected by marital status.

For the short-range period, the number of retired-worker beneficiaries is developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabled-worker, or widow(er)'s benefits, and by applying termination rates to the number of persons already receiving retired-worker benefits.

For the long-range period, the number of retired-worker beneficiaries not previously converted from disabled-worker beneficiary status is projected as a percentage of the exposed population, i.e., the aged fully insured population less persons entitled to or converted from disability benefits and insured persons entitled to widow(er)'s benefits. The percentage for age 62 is projected by a simple linear regression based on the projected labor force participation rate for age 62. The percentage for ages 70 and over is assumed to be nearly 100, because the retirement earnings test and delayed retirement credit do not apply after age 70, but is adjusted for the statistical difference between in-force data and in-current-payment data. The percentage for each age 63 through 69 is projected from the December 31, 2001 retired-worker beneficiaries data which reflects the elimination of the earnings test after normal retirement age, with an adjustment for changes in the portion of the primary insurance amount that is payable at each age of entitlement. As the normal retirement age increases, the number of retired-worker beneficiaries not automatically converted from disabled-worker beneficiary status as a percentage of the exposed population is gradually adjusted downward at each age 63 through 69.

For the long-range period also, the number of retired-worker beneficiaries previously converted from disabled-worker beneficiaries is calculated as an extension beyond normal retirement age of the calculation of disabled-worker beneficiaries.

The number of aged-spouse beneficiaries is estimated from the population projected by age and sex. The benefits of aged-spouse beneficiaries are based on the earnings records of their husbands or wives, who are referred to as "wage earners." In the short-range period, a regression equation is used to project the number of aged-spouse beneficiaries, as a proportion of the aged uninsured female or male population. In the long-range period, aged-spouse beneficiaries are estimated from the population projected by age, sex, and marital status. To the number of spouses aged 62 and over in the population, a series of factors are applied, representing the probabilities that the spouse and the wage earner meet all of the conditions of eligibility-i.e., the probabilities that (1) the wage earner is 62 or over, (2) the wage earner is insured, (3) the wage earner is receiving benefits, (4) the spouse is not receiving a benefit for the care of an entitled child, (5) the spouse is not insured, and (6) the spouse is not eligible to receive a significant government pension based on earnings in noncovered employment. To the resulting number of spouses a projected prevalence rate is applied to calculate the estimated number of aged-spouse beneficiaries.

In addition, the same factors are applied to the number of divorced persons aged 62 and over in the population, with three differences. First, an additional factor is required to reflect the probability that the person's former wage-earner spouse is still alive (otherwise, the person may be entitled to a divorced widow(er)'s benefit). Second, a factor is required to reflect the probability that the marriage to the wage-earner spouse is at least 10 years in duration. Third, factor (3) above is not applied because, effective for January 1985, a divorced person generally need not wait to receive benefits until the former wage-earner spouse is receiving benefits.

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as children of retired-worker beneficiaries, are based on the projected number of children in the population. In the short-range period, the number of entitled children is developed by applying award rates to the number of children in the population where both parents are alive, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of entitled children is projected separately by sex of the wage-earner parent. To the number of children in the population, factors are applied representing the probabilities that the parent is alive, aged 62 or over, insured, and receiving a retired-worker benefit. Another factor is applied representing the probability that the child is not entitled to a benefit based on the other parent's earnings. In addition, a factor is applied to reduce the number of beneficiaries to reflect the more restrictive requirements for entitlement of stepchildren that were enacted in Public Law 104-121. For children aged 18, a factor representing the probability that the child is attending a secondary school is also applied.

The number of disabled children aged 18 and over of retired-worker beneficiaries is projected from the adult population. In the short-range period, award rates are applied to the population, and termination rates are applied to the number of disabled children already receiving benefits. In the long-range period, disabled children are projected in a manner similar to that for children under 18, with the inclusion of a factor representing the probability of being disabled since childhood.

In the short-range period, the number of entitled young-spouse beneficiaries is developed by applying award rates to the number of awards to children of retired workers, where the children are either under age 16 or disabled, and by applying termination rates to the number of young-spouses already receiving benefits. In the long-range period, young-spouse beneficiaries are projected as a proportion of the projected number of child beneficiaries of retired workers, taking into account projected changes in average family size.

The number of aged-widow(er) beneficiaries is projected from the population by age and sex. In the short-range period, insured aged-widow(er) beneficiaries are projected concurrently with the retired-worker beneficiaries. A regression equation projects the number of uninsured aged-widow(er) beneficiaries, as a proportion of the uninsured aged female or male population not receiving any type of benefit. In the long-range period, aged-widow(er) beneficiaries are projected from the population by age, sex, and marital status. Four factors are applied to the number of widow(er)s in the population aged 60 and over. These factors represent the probabilities that (1) the deceased wage earner is fully insured at death, (2) the widow(er) is not receiving a benefit for the care of an entitled child, (3) the widow(er) is not fully insured, and (4) the widow(er)'s benefits are not withheld because of receipt of a significant government pension based on earnings in noncovered employment. In addition, some insured widow(er)s who had not applied for their retired-worker benefits are assumed to receive widow(er)'s benefits. Also, the same factors are applied to the number of divorced persons aged 60 and over in the population, with additional factors representing the probability that the person's former wage-earner spouse is deceased and that the marriage is at least 10 years in duration.

In the short-range period, the number of disabled-widow(er) beneficiaries is estimated as a proportion of the uninsured female or male population aged 50-64. In the long-range period, the number is projected for each age 50 through 64 as a percentage of the widowed and divorced populations, adjusted for the insured status of the deceased spouse and the prevalence of disability.

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as survivors of deceased workers, are based on the projected number of children in the population whose mothers or fathers are deceased. In the short-range period, the number of entitled children is developed by applying award rates to the number of orphaned children, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of child-survivor beneficiaries is projected in a manner analogous to that for child beneficiaries of retired workers, with the factor representing the probability that the parent is aged 62 or over replaced by a factor that represents the probability that the parent is deceased.

In the short-range period, the numbers of entitled mother-survivor and father-survivor beneficiaries are developed by applying award rates to the number of awards to child-survivor beneficiaries, where the children are either under age 16 or disabled, and by applying termination rates to the number of mother-survivors and father-survivors already receiving benefits. In the long-range period, mother-survivor and father-survivor beneficiaries are estimated from the number of child-survivor beneficiaries, taking into account projected changes in average family size.

The number of parent-survivor beneficiaries is projected based on the historical pattern of the number of such beneficiaries.

Table V.C4 shows the projected number of beneficiaries under the OASI program by type of benefit. Included among the beneficiaries who receive retired-worker benefits are some persons who also receive a residual benefit consisting of the excess of an auxiliary benefit over their retired-worker benefit. Estimates of the number of such residual payments are made separately for spouses and widow(er)s.

Table V.C4.—OASI Beneficiaries With Benefits in Current-Payment Status
at the End of Calendar Years 1945-2080 
[In thousands]
Calendar year
Retired workers and auxiliaries

Survivors
  Total
  Worker
  Wife-
husband
  Child
  Widow-
widower
  Mother-
father
  Child
  Parent
Historical data:
1945
518
159
13

94
121
377
6
1,288
1950
1,771
508
46

314
169
653
15
3,477
1955
4,474
1,192
122

701
292
1,154
25
7,961
1960
8,061
2,269
268

1,544
401
1,577
36
14,157
1965
11,101
2,614
461

2,371
472
2,074
35
19,128
1970
13,349
2,668
546

3,227
523
2,688
29
23,030
1975
16,589
2,867
643

3,888
582
2,919
21
27,509
1980
19,564
3,018
639

4,415
563
2,610
15
30,823
1985
22,435
3,069
456

4,863
372
1,918
10
33,123
1986
22,985
3,088
450

4,931
350
1,878
9
33,691
1987
23,444
3,090
439

4,984
329
1,837
8
34,130
1988
23,862
3,086
432

5,029
318
1,809
7
34,543
1989
24,331
3,093
422

5,071
312
1,782
6
35,017
1990
24,841
3,101
421

5,111
304
1,777
6
35,562
1991
25,293
3,104
425

5,158
301
1,792
5
36,078
1992
25,762
3,112
431

5,205
294
1,808
5
36,618
1993
26,109
3,094
436

5,224
289
1,837
5
36,994
1994
26,412
3,066
440

5,232
283
1,865
4
37,303
1995
26,679
3,026
441

5,226
275
1,884
4
37,534
1996
26,905
2,970
442

5,210
242
1,898
4
37,671
1997
27,282
2,922
441

5,053
230
1,893
3
37,825
1998
27,518
2,864
439

4,990
221
1,884
3
37,918
1999
27,784
2,811
442

4,944
212
1,885
3
38,081
2000
28,505
2,798
459

4,901
203
1,878
3
38,748
2001
28,843
2,742
467

4,828
197
1,890
3
38,969
Intermediate:
2005
30,298
2,635
487

4,764
181
1,911
2
40,278
2010
34,126
2,545
485

4,848
171
1,891
2
44,067
2015
40,490
2,488
542

4,894
164
1,896
3
50,478
2020
48,324
2,528
652

4,936
160
1,856
3
58,459
2025
55,635
2,586
747

5,019
160
1,829
3
65,979
2030
61,740
2,583
797

5,066
159
1,814
3
72,162
2035
65,426
2,547
816

5,087
155
1,792
3
75,827
2040
66,895
2,499
818

5,104
151
1,761
3
77,232
2045
68,051
2,528
827

5,126
146
1,733
3
78,415
2050
69,692
2,610
842

5,136
142
1,708
3
80,133
2055
72,156
2,755
869

5,148
138
1,680
3
82,749
2060
74,937
2,886
887

5,168
133
1,649
3
85,664
2065
77,774
2,995
905

5,231
129
1,618
3
88,655
2070
80,635
3,079
920

5,323
125
1,591
3
91,676
2075
83,346
3,168
934

5,418
121
1,567
3
94,558
2080
85,939
3,252
951

5,491
118
1,545
3
97,298
Low Cost:
2005
30,260
2,630
488

4,760
182
1,919
2
40,241
2010
33,941
2,526
490

4,824
175
1,930
2
43,886
2015
39,850
2,440
545

4,895
163
2,001
3
49,897
2020
47,127
2,460
656

4,965
158
2,025
3
57,394
2025
53,819
2,481
758

5,085
158
2,067
3
64,372
2030
59,137
2,433
819

5,156
157
2,122
3
69,827
2035
61,957
2,355
851

5,172
157
2,167
3
72,661
2040
62,630
2,275
868

5,158
156
2,194
3
73,284
2045
63,223
2,284
893

5,137
156
2,216
3
73,912
2050
64,508
2,348
927

5,107
157
2,242
3
75,292
2055
66,716
2,472
975

5,097
159
2,271
3
77,692
2060
69,195
2,568
1,015

5,117
160
2,298
3
80,357
2065
71,621
2,655
1,053

5,194
162
2,325
3
83,013
2070
74,145
2,726
1,087

5,312
163
2,353
3
85,789
2075
76,842
2,812
1,125

5,444
164
2,383
3
88,773
2080
79,837
2,906
1,167

5,573
165
2,415
3
92,066
High Cost:
2005
30,331
2,640
486

4,769
180
1,904
2
40,313
2010
34,310
2,566
481

4,875
166
1,853
2
44,252
2015
41,162
2,557
542

4,869
165
1,782
3
51,080
2020
49,666
2,629
651

4,863
157
1,673
3
59,641
2025
57,746
2,752
741

4,888
152
1,578
3
67,861
2030
64,859
2,824
781

4,898
145
1,500
3
75,010
2035
69,667
2,863
785

4,921
135
1,423
3
79,797
2040
72,223
2,866
768

4,972
125
1,347
3
82,304
2045
74,283
2,932
758

5,040
115
1,287
3
84,418
2050
76,643
3,045
751

5,089
106
1,233
3
86,870
2055
79,694
3,227
754

5,115
97
1,177
3
90,067
2060
83,106
3,385
751

5,110
88
1,119
3
93,562
2065
86,594
3,547
751

5,124
81
1,064
3
97,164
2070
90,018
3,653
749

5,157
74
1,015
3
100,668
2075
92,996
3,746
746

5,191
67
972
3
103,721
2080
95,415
3,817
745

5,197
62
933
3
106,172

Note: The number of beneficiaries does not include certain uninsured persons, most of whom both attained age 72 before 1968 and have fewer than 3 quarters of coverage, in which case the costs are reimbursed by the General Fund of the Treasury. Totals do not necessarily equal the sums of rounded components.

6. Disability Insurance Beneficiaries

Benefits are paid from the DI Trust Fund to individuals who satisfy the disability-insured requirements, who are unable to engage in substantial gainful activity due to medically determinable physical or mental impairment severe enough to satisfy the requirements of the program, and have not yet attained normal retirement age. Spouses and children of such disabled workers may also receive DI benefits provided they satisfy certain criteria, mostly depending upon age or the age of a child in the care of the non-disabled spouse. In projecting future benefit outlays from the DI Trust Fund, the number of DI beneficiaries is projected for each type of beneficiary separately, by the sex of the disabled worker on whose earnings the benefits are based, and the age of the beneficiary. Such projections are accomplished using standard actuarial methods reflecting future additions to the DI rolls through awards of new benefits, and subtractions from the rolls due to death, recovery, or administrative conversion upon attainment of normal retirement age from status as a disabled-worker beneficiary to status as a retired-worker beneficiary. The long-range and short-range models used to make these projections are both constructed from this basic outline, but differ in some details reflecting their respective uses.

The number of new entitlements to disabled-worker benefits during each year is projected by applying assumed age-sex specific disability incidence rates to the projected disability-exposed population.2 Long-range ultimate disability incidence rates are selected based on careful analysis of historical patterns and expected future conditions, including the impact of scheduled increases in the normal retirement age.3 Incidence rates for the first half of the short-range period reflect the most recent actual experience along with consideration of other factors expected to affect the processing of disability claims in the near term. Over the latter half of the short-range period, incidence rates are assumed to trend into levels consistent with the long-range ultimate incidence rate assumptions.

These assumed incidence rates are summarized in figure V.C3 and table V.C5. As illustrated in figure V.C3, incidence rates have varied within a wide range over the past 30 years. Although not completely understood, this variation is attributed in large part to a variety of demographic and economic factors, along with the effects of changes due to legislation and program administration.4 The solid lines in figure V.C3 illustrate values of the summarized incidence rate, age-sex adjusted to the distribution of the disability-exposed population for 1998. Such adjustment facilitates meaningful comparisons over long periods of time. From a historically high level of about 7 awards per thousand insured in 1975, age-sex-adjusted rates declined to about 3.6 per thousand by 1982. Following a gradual trend upward, rates increased to about 5.7 per thousand by 1992, but declined from that point to about 4.6 per thousand in 2000. As described in chapter IV, in the discussion of the short-range DI estimates, the incidence rate experience for 2001, and the projections for 2002 and 2003, are affected by a one-time special workload that is expected to add roughly 200,000 disabled workers to the DI rolls. The effect of that special workload on incidence rates is easily observed in the figure. In addition to historical values, figure V.C3 displays the age-sex-adjusted short-range incidence rates under the three alternative sets of assumptions. Gross (unadjusted) incidence rates are also shown in figure V.C3 in dashed lines. These unadjusted rates are heavily influenced by the changing age-sex distribution of the exposed population over time. This is most noticeable in the period 2003 to 2011 when the aging baby-boom generation will be concentrated in the ages of highest disability incidence.

Figure V.C3.—DI Disabled Worker Incidence Rates, 1970-2011
[Awards per thousand disability exposed]
DI disabled worker incidence rates, 1970-2001 (awards per thousand disability exposed). Projected numbers (2002-2011) under all three alternatives. Solid lines illustrate values of the summarized incidence rate, age-sex adjusted to the distribution of the disability exposed population for 1998. The dashed lines illustrate the gross (unadjusted) incidence rates.


Table V.C5 presents the long-range ultimate incidence rate assumptions age-sex adjusted to the disability-exposed population as of January 1, 1996. The table also indicates the year in which the ultimate values are attained, along with an indication of the relationship between those ultimate rates and the rates for the base period (1994-96) that was used to develop relative levels of disability incidence by age and sex for long-range assumptions.

Table V.C5.—Long-Range Ultimate Disabled Worker Age-Sex Adjusted Incidence Rates1

Ultimate
incidence rate

Year ultimate
rate is attained 2

Percent change from
base period 3 to ultimate rate
Intermediate assumption
5.5

2027

+9
Low cost assumption
4.4

2027

-13
High cost assumption
6.6

2027

+30

1 Number of annual new disabled-worker entitlements per thousand disability-exposed, age-sex adjusted to the disability-exposed population as of January 1, 1996.

2 The transition to ultimate incidence rates is generally completed in 2021. However, for ages 61 through 66 incidence rates are adjusted through 2027 in order to reflect increases in the normal retirement age (NRA) that are scheduled in the law.

3 Base period rate for long-range incidence rate assumptions is 5.0 per thousand representing the average age-sex adjusted incidence rate for 1994-96.


The number of disabled-worker beneficiaries having their benefits terminated during each year is projected by applying assumed termination rates to the disabled-worker population. The termination rates are developed by age, sex, and reason for termination.5 In addition, in the long-range period, termination rates are also assumed to vary by duration of entitlement to disabled-worker benefits. To this number of terminations is added the number of disabled-worker beneficiaries who would be automatically converted to retired-worker beneficiaries upon attainment of the normal retirement age.

In the short-range period, gross death rates under the intermediate assumptions are projected to remain relatively constant at between 35 and 37 deaths per thousand disabled workers. This is about the same as projected under the intermediate set of assumptions for last year's report. The pattern of projected recovery rates under the intermediate assumptions is consistent with assumed levels of continuing disability reviews required to fulfill the legislative mandate for regular reviews of all disabled beneficiaries. Under low cost (high cost) assumptions, terminations due to death, recovery, and other reasons increase (decrease) to levels roughly 10 percent higher (lower) than those under the intermediate assumptions.

For the long-range period, projection of death rates and recovery rates begins with an analysis of such rates split by age, sex, and duration of entitlement over the base period 1991-95.6 Under the intermediate assumptions, recovery rates for both males and females, are assumed to remain approximately constant after 2021. Death rates over the long-range period are assumed to change gradually, at about the same trend as for death rates in the general population, reaching levels in 2080 which are lower than the base period level by 54 percent for males and 46 percent for females.

Under the low cost assumptions, recovery rates and death rates are assumed to be higher than the corresponding levels assumed for the intermediate assumptions. Ultimate recovery rates are assumed to be higher than the base period rate by 125 percent for males and by 89 percent for females, while death rates are assumed to change gradually reaching levels for 2080 which are lower than the base period level by 35 percent for males and 23 percent for females.

Under the high cost assumptions, recovery rates and death rates are assumed to be lower than the corresponding levels assumed for the intermediate assumptions. Ultimate recovery rates are assumed to be higher than the base period rate by 50 percent for males and by 26 percent for females, while death rates are assumed to change gradually reaching levels for 2080 which are lower than the base period level by 74 percent for males and 70 percent for females.

These detailed projections of disabled-worker entitlements and terminations are combined using standard multiple decrement techniques to produce projections of numbers of disabled workers in current-payment status over the 75-year projection period. These projections are presented in table V.C6. As indicated in that table, the number of disabled workers in current-payment status is projected to grow from 5.3 million at the end of 2001, to 11.2 million, 12.8 million, or 14.1 million at the end of 2080, under the low cost, intermediate, or high cost assumptions, respectively. Of course, much of this growth is a direct result of the growth and aging of the population described earlier in this chapter.

Another way to view this projected growth in disabled workers is to compare the size of the projected disabled-worker population to the size of the underlying disability-insured population reflecting the age-sex distribution of the insured population as of January 1, 1996. Such a ratio eliminates the effects of the aging population and is referred to as the disabled worker age-sex adjusted prevalence rate. Expressed in these terms, the prevalence of disability is projected to grow from 34.1 per thousand disability insured at the beginning of 2001, to 34.5 per thousand, 46.3 per thousand, and 59.9 per thousand at the beginning of 2080, under the low cost, intermediate, and high cost assumptions, respectively.

Table V.C6 also presents projections of the numbers of auxiliary beneficiaries paid from the DI Trust Fund. As indicated at the beginning of this subsection, such auxiliary beneficiaries consist of qualifying spouses and children of disabled workers. In the case of children, the child must be either (1) under age 18, (2) age 18 and still a student in high school, or (3) over age 18 and disabled prior to age 22. In the case of spouses, the spouse must either be at least age 62, or have an eligible child beneficiary who is either under age 16 or disabled in his or her care.

In general, such auxiliary beneficiaries are projected in a manner that is related to the projected number of disabled-worker beneficiaries. In the short-range period, this is accomplished for family members of disabled-worker beneficiaries by projecting incidence and termination rates for each category of auxiliary beneficiary. In the long-range period, the child beneficiaries at ages 18 and under are projected in relation to the projected number of children in the population, by applying factors representing the probability that either of their parents is insured and disabled. Spouses eligible because they have an eligible child in care are projected relative to the projected number of such children. The remaining categories of children and spouses are projected in relation to the projected number of disabled-worker beneficiaries.

Table V.C6.—DI Beneficiaries With Benefits in Current-Payment Status at the End of Calendar Years 1960-2080 
[In thousands]
Calendar year
  Disabled
worker
Auxiliaries
  Total
  Wife-
husband
  Child
Historical data:
1960
455
77
155
687
1965
988
193
558
1,739
1970
1,493
283
889
2,665
1975
2,488
453
1,411
4,351
1980
2,856
462
1,359
4,677
1985
2,653
306
945
3,904
1986
2,725
301
965
3,991
1987
2,782
291
968
4,041
1988
2,826
281
963
4,070
1989
2,891
271
962
4,124
1990
3,007
266
989
4,261
1991
3,191
266
1,052
4,509
1992
3,464
271
1,151
4,886
1993
3,721
273
1,255
5,249
1994
3,958
271
1,350
5,579
1995
4,179
264
1,409
5,852
1996
4,378
224
1,463
6,065
1997
4,501
207
1,438
6,146
1998
4,691
190
1,446
6,327
1999
4,870
176
1,468
6,514
2000
5,036
165
1,466
6,667
2001
5,268
157
1,482
6,907
Intermediate:
2005
6,344
155
1,629
8,128
2010
7,477
166
1,848
9,492
2015
8,203
171
1,963
10,336
2020
8,885
188
2,069
11,143
2025
9,762
222
2,202
12,185
2030
9,898
228
2,306
12,433
2035
9,998
230
2,387
12,615
2040
10,308
235
2,449
12,991
2045
10,956
251
2,509
13,715
2050
11,395
261
2,561
14,217
2055
11,758
271
2,610
14,640
2060
11,895
273
2,651
14,820
2065
12,133
277
2,689
15,099
2070
12,367
282
2,722
15,371
2075
12,603
289
2,756
15,649
2080
12,797
294
2,794
15,885
Low Cost:
2005
6,042
146
1,549
7,737
2010
6,721
148
1,657
8,526
2015
6,994
137
1,674
8,805
2020
7,312
141
1,727
9,180
2025
7,860
158
1,834
9,853
2030
7,877
155
1,944
9,976
2035
7,915
152
2,046
10,114
2040
8,156
154
2,135
10,444
2045
8,680
166
2,216
11,061
2050
9,058
174
2,298
11,530
2055
9,397
182
2,391
11,970
2060
9,608
185
2,485
12,279
2065
9,951
191
2,582
12,724
2070
10,361
198
2,676
13,235
2075
10,806
206
2,772
13,784
2080
11,232
214
2,871
14,317
High Cost:
2005
6,849
173
1,779
8,801
2010
8,471
190
2,093
10,755
2015
9,516
221
2,284
12,021
2020
10,522
254
2,415
13,191
2025
11,738
310
2,548
14,595
2030
12,014
329
2,621
14,964
2035
12,198
335
2,655
15,188
2040
12,599
342
2,668
15,609
2045
13,389
362
2,695
16,446
2050
13,900
372
2,708
16,980
2055
14,280
381
2,702
17,363
2060
14,304
377
2,678
17,358
2065
14,365
380
2,646
17,391
2070
14,314
376
2,609
17,299
2075
14,218
376
2,576
17,170
2080
14,063
374
2,548
16,984

Note: Totals do not necessarily equal the sums of rounded components.

7. Average Benefits

Average benefits are projected by type of benefit based on recent historical averages, projected average primary insurance amounts (PIAs), and projected ratios of average benefits to average PIAs. Average PIAs are calculated from projected distributions of beneficiaries by duration from year of award, average awarded PIAs, and increases thereto since the year of award, reflecting automatic benefit increases, recomputations to reflect additional covered earnings, and other factors. Average awarded PIAs are calculated from projected earnings histories, which are developed from the actual earnings histories associated with a sample of awards made in 2001. A sample of 1999 awards, with adjustment in age distribution to reflect the effect of the Senior Citizens' Freedom to Work Act of 2000, Public Law 106-182, enacted on April 7, 2000, was used for the 2001 report.

For several types of benefits-retired-worker, aged-spouse, and aged-widow(er) benefits-the percentage of the PIA that is payable depends on the age at initial entitlement to benefits. Projected ratios of average benefits to average PIAs for these types of benefits are based on projections of age distributions at initial entitlement.

8. Benefit Payments

For each type of benefit, benefit payments are calculated as the product of a number of beneficiaries and a corresponding average monthly benefit. In the short-range period, benefit payments are calculated on a quarterly basis. In the long-range period, all benefit payments are calculated on an annual basis, using the number of beneficiaries on December 31. These amounts are adjusted to include retroactive payments to newly awarded beneficiaries, and other amounts not reflected in the regular monthly benefit payments.

Lump-sum death payments are calculated as the product of (1) the number of such payments, which is projected on the basis of the assumed death rates, the projected fully insured population, and the estimated percentage of the fully insured population that would qualify for benefits, and (2) the amount of the lump-sum death payment, which is $255 (not indexed in future years).

9. Administrative Expenses

The projection of administrative expenses through 2011 is based on historical experience and the expected growth in average wages. Additionally, estimates for the first several years of the projection are provided by the Office of Budget. For years after 2011, administrative expenses are assumed to increase because of increases in the number of beneficiaries and increases in the average wage which will more than offset assumed improvements in administrative productivity.

10. Railroad Retirement Financial Interchange

Railroad workers are covered under a separate multi-tiered plan, the first tier being very similar to OASDI coverage. An annual financial interchange between the Railroad Retirement fund and the OASI and DI funds is made reflecting the difference between (1) the amount of OASDI benefits that would be paid to railroad workers and their families if railroad employment had been covered under the OASDI program and administrative expenses associated with these benefits, and (2) the amount of OASDI payroll tax and income tax that would be received with allowances for interest from railroad workers.

The effect of the financial interchange with the Railroad Retirement program is evaluated on the basis of trends similar to those used in estimating the cost of OASDI benefits. The resulting effect is annual short-range costs of about $3-5 billion and a long-range summarized cost of 0.04 percent of taxable payroll to the OASDI program.

11. Benefits to Uninsured Persons

Some older persons had little or no chance to become fully insured for Social Security benefits during their working lifetimes. Special payments from the OASI Trust Fund may be granted to uninsured persons who either: (1) attained age 72 before 1968, or (2) attained age 72 in 1968 or later and had 3 quarters of coverage for each year after 1966 and before the year of attainment of age 72. Benefits and costs associated with uninsured persons of the first type above are reimbursable from the General Fund of the Treasury. All projected costs associated with reimbursable and non-reimbursable payments to uninsured persons are insignificant.

12. Military-Service Transfers

Beginning in 1966, the OASI and DI Trust Funds were reimbursed annually for the cost (including administrative expenses) of providing additional benefit payments resulting from noncontributory wage credits for military service performed prior to 1957. The 1983 amendments modified the reimbursement mechanism and the timing of the reimbursements, and required a transfer in 1983 to include all future costs attributable to the wage credits. The amendments also require adjustments to that 1983 transfer every fifth year, beginning with 1985, to account for actual data.

The adjustments for 2000 included a transfer of $836 million from the DI Trust Fund to the General Fund of the Treasury. The $393 million that was scheduled to be transferred from the general fund to the OASI Trust Fund did not occur in 2000, but was transferred with an allowance for interest in February 2002.

13. Income From Taxation of Benefits

Under present law, the OASI and DI Trust Funds are credited with the additional income taxes attributable to the taxation of the first 50 percent of OASDI benefit payments. (The remainder of the income taxes attributable to the taxation of up to 85 percent of OASDI benefit payments is credited to the HI Trust Fund.) For the short-range period, income to the trust funds from such taxation is estimated by applying the following two factors to total OASI and DI benefit payments: (1) the percentage of benefit payments (limited to 50 percent) that is taxable, and (2) the average tax rate applicable to those benefits. For the long-range period, income to the trust funds from such taxation is estimated by applying projected ratios of such income to total OASI and DI benefit payments. Because the income thresholds used for benefit taxation are, by law, constant in the future, their values in relation to future income and benefit levels will decline. Thus, ratios of income from taxation of benefits to the amount of benefits are projected to increase. These ratios are projected reflecting the results of a model developed by the Office of Tax Analysis, Department of the Treasury, relating OASDI benefit payments to total personal income for a sample of recent tax returns.


1 Details of these indexation procedures are published annually in the Federal Register, and are also available on the Internet at http://www.ssa.gov/OACT/COLA/index.html.

2 The disability-exposed population is the disability-insured population that is not currently entitled for disabled-worker benefits.

3 Incidence rates are adjusted upward to account for the additional workers who are expected to file for disability benefits rather than for reduced retirement benefits that are even more reduced when the NRA is greater than age 65.

4 A more detailed discussion of the recent history of the DI program is presented in Actuarial Study 114, "Social Security Disability Insurance Program Worker Experience", June 1999. This study can be found on the Internet at http://www.ssa.gov/OACT/NOTES/AS114/as114Foreword.html.

5 Reasons for termination include death, recovery and (in the short range only) a small residual category of terminations for special administrative reasons.

6 The termination rate analysis was based on work presented in Actuarial Study 114 referenced previously.


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